‘Rough waters ahead,’ Finance Minister warns

Minister of Finance Camillo Gonsalves did not sugar-coat reality as he told lawmakers and the nation what lies ahead a result of the economic fallout from the COVID-19 pandemic.

“Make no mistake. There are rough waters ahead for our public health, our society and our economy. We have never been down this path before,” Gonsalves told Parliament on Tuesday.

He told lawmakers that the COVID-19 pandemic is much more than a grave threat to the health of Vincentians.

“The rapid global spread of the virus has precipitated an economic emergency of unprecedented scope and scale. The international economy is grinding to a halt, as all conduits of global trade and commerce are severed,” Gonsalves said as he asked lawmakers to approve his fiscal package.

Lawmakers, late Tuesday night, approved the National Recovery and Stimulus Plan, which the minister said well exceeds EC$85 million and therefore approaches 4% of gross domestic product (GDP).

“Even in the midst of the steep tourism decline after the 911 terrorist bombings in the United States, airlines were still flying.

“Even in the catastrophic aftermath of the 2008 global economic and financial crisis, world trade continued. Further, the post 2008 crisis did not have the lingering public health uncertainties that beset us today.”

The minister said that St. Vincent and the Grenadines is “facing a one-two punch of collapsing tourism and global recession.

“The effects of the tourism shutdown will be felt immediately and are being felt. The impacts of the global recession may hit us later and last longer. In addition to this one-two punch, a third and potential knockout blow awaits in the form of the 2020 Atlantic hurricane season.”

He said that experts predict an above average hurricane season with 16 storms and eight hurricanes, four of which will be category three or above.

“According to the current predictions, we can only pray that our recent string of good fortune will continue and that we will be spared the impact of this busy upcoming hurricane season.”

Gonsalves said that the grim and ever present potential of a catastrophic climate event aside, “We must recognise the certainty, severity and complexity of the socio-economic calamity that now faces St. Vincent and the Grenadines.

“In the face of the challenges ahead, the government must act and in shaping our response.”

he said that the economic policy must be guided by three clear objectives, first and foremost, minimising the loss of life and strengthening the public health system to cope with more widespread infections.

Even as Parliament was still debating the package, SVG recorded its 8th confirmed case of COVID-19. Further, over 400 persons are in quarantine as a result of the pandemic.

Fears over the infectious disease have left Kingstown, the nation’s capital and its centre of economic activities, looking like a ghost town on the eve of Easter, the second largest religious celebration — after Christmas.

The minister said that the second objective is to minimise the economic impacts on vulnerable Vincentians, displaced workers and the most-affected sectors.

“And third, to keep the economy afloat through targeted stimulus spending, while maintaining macroeconomic stability and laying the groundwork to resume growth when the pandemic abates.”

‘entering a period of survival’

Gonsalves said that while there is no contradiction among the three objectives, “there is certainly some tension.

“As a small country with limited resources, we have to make difficult decisions about how to apportion money among our health care, bailout, and stimulus goals.”

He said the supplementary estimates represent his government’s considered judgment about how to best allocate scarce resources.

“Let us be clear, we do not have the ability or the money to heal the sick or to make every person whole or to bail out every business or to fully jumpstart the economy.

“In these rough waters, we are trying to keep our people and our economy afloat. We are entering a period of survival. After the pandemic, it will be easier to revive an economy or a sector that was kept afloat than one that drowned in the turbulent waters that we must navigate.

“Economic pain is unavoidable. However, together we can weather the storm, and together we can beat COVID-19,” he said.

Noting the size of the stimulus package relative to GDP, Gonsalves said:

“At such a size, this recovery and stimulus package is large. And it is an ambitious investment in our health in our people and in our economic future.”

‘Tourism is in deep trouble’

Gonsalves noted that on April 3, Kristalina Georgieva, managing director of the International Monetary Fund, called the pandemic “humanity’s darkest hour and a big threat to the whole world”.

Georgieva further said that the crisis was unlike any other in the history of the IMF in that the world economy had come to a standstill.

“We are now in recession. It is way worse than the global financial crisis,” Georgieva further said.

Gonsalves said:

“Even as we in St. Vincent and the Grenadines continue to avoid the worst of the pandemic from a public health perspective, we have already been battered by the fast moving economic catastrophe.”

He said that the tourism and hospitality sectors have collapsed.

“There are no flights into the country, no cruise ships arriving and consequently no guests in hotels.

“Traditional mainstays of the tourism calendar from the Easter Regatta to Carnival are being cancelled or rescheduled. The consequential knock on effects for other sectors and the national economy are obvious. Tourism is in deep trouble,” Gonsalves said, adding that it is anybody’s guess when the sector will return to normalcy.

“Unemployment and underemployment are increasing rapidly,” he said, adding that rising joblessness is being driven primarily by closures in hotels and shutdowns in restaurants, entertainment and the informal sector.

“As a result, hard won gains in enhancing the lives of our most vulnerable Vincentians are under threat.

“Similarly, employment and economic slowdowns in our diaspora communities foreshadow potentially destabilising reductions in remittances, logistical challenges. Economic uncertainties have halted or slowed some important infrastructure projects here in St. Vincent and the Grenadines. As capital departs from developing economies for the relative safety of advanced countries, previously scheduled foreign direct investments will slow to a trickle.”

The finance minister said this has immediate implications for unemployment, and poses medium term challenges to SVG’s developmental timelines.

“Fewer tourists, less economic activity, disrupted supply chains, and reduced foreign direct investment, mean less revenue for the government to pay its own bills and advance its own developmental agenda.

“Economic shrinkage in St. Vincent and the Grenadines in 2020 is all but certain,” he said, noting that at the beginning of the year, the Eastern Caribbean Central Bank predicted regional economic growth in the Organisation of Easter Caribbean States (OECS) of 3.3%.

“Today, the central bank’s most recent projections suggest that the regional economy may shrink by almost 7%. This represents a 10% swing relative to the projections of just a few months ago.”

Gonsalves said that in SVG, various scenarios of the Ministry of Finance predict an economic contraction of as much as 5% versus “the moderate growth projections of just two months ago. “There is no sugar-coating of the fact that the COVID-19 pandemic makes 2020 a year of shrinking economies, growing deficits and mounting liquidity challenges across CARICOM. St. Vincent and the Grenadines will not be spared the massive economic fallout of this pandemic,” the minister said.

So I will also add to that. Most conservative governments build up a rainy day account. So when something like this happens there is something to fall back on. Instead we have a $1.5 billion national debt. The rest of the World has this pandemic, and will be helping themselves so we cannot expect much help from them.

Every housewife knows she cannot spend more than her man brings home. Shame the comrade did not have some housewife qualities.

We are in so much trouble the tourist and hotel business has collapsed worldwide and we have just borrowed multi millions for that industry in SVG. Its called putting all your eggs in one basket.

I do not think that any country is going to prosper now or in the immediate future. There are too many countries like the USA and Saint Vincent that have based thier economies on debt; Borrow and spend, Keynesian, demand-side economics. Any thinking person has to wonder what is going to happen to those countries as opposed to countries like Russia or Singapore that have more reserves than debt.

The difficulty for many countries that do not have any control over the Global Money Supply, (as the US Government does) is that countries like Saint Vincent may not find it so easy to base thier economies on loans and ever-increasing debt, with the hopes of debt forgiveness. There may be too many countries begging after this crisis. Too much fiat money creation will drastically lower the buying power of those currencies and we will probably see hyperinflation. If we think the falling dollar will make it easier for us to pay back our debt, it is not that simple!

In Saint Vincent we may actually have to institute prudent economics and enact policy that fosters job creation instead of just handouts for votes. Unfortunately it is an election year in both the USA and Saint Vincent. As we are seeing that Donald Trump has along with regulation reductions, has incorporated a large part of Socialism into his economic policy. Ralph Gonsalves, (to his credit!) on the other hand has incorporated some Supply-side Economics, (such as tax-reductions on Water and Electricity and some streamlined procedures).
For the mid- and longterm strength and not only survival for the country Supply-side Economics will have to be incorporated. Camillo is right that it is not going to be easy. This time the Government will have to make some of the sacrifice instead of always making the people suffer with higher and higher taxes, fees and duties. If they drastically raise taxes again we will see even more unemployment than we already have! NO BUSINESS WANTS TO STARTUP IN AN OVERTAXED ENVIRONMENT!
If we want to use this crisis to become stronger the government will have to feel the austerity this time as well. We should trim the government of all the useless do-nothing jobs that only suck the peoples money. Drastically cut duties on all machines and supplies that contribute to building the country. MOST COUNTRIES IN THE WORLD HAVE BEEN DOING THIS FOR A LONG TIME! Saint Vincent has traditionally been charging heavy taxes and duties on anyone wishing to import and operate any business that brings in good profits.
Along with this the government should FINALLY streamline the paperwork or eliminate most of it completely by requiring people to fill out and apply for concessions and other things and have to wait for the papers to run through all the departments often sitting on a lazy beurocrats desk for months maybe because that person belongs to the wrong political party.
The SVG Government has always been the entity that gets the lion’s share of all income of any business enterprise. If the government wants to institute prosperity they have to allow the Private Sector to keep some of the fruits of thier labor, otherwise, it will take us much longer to recover from this crisis.
I would hope this crisis will force the government to GET THIER ACT TOGETHER and restructure instead of continuing with this what we have at present.

Much of the “rough waters” are because of our economic practices BEFORE the crisis. Many of us have been recommending a different economic and financial philosophy but the SVG Government like many others insist on the very bad Keynesian model, (that includes fiat money) that believes an economy can be perpetually “sustained” by excessive debt and spending. The USA gets away with it because they have no limit on how much debt they can create, but that too may come to an end very soon!

That’s why they should take a pay cut. They should shred all the unnecessary allowances they so undeservingly benefit from. All the political agencies and boards and organisations they have set up for their personal and cronies’ advancement – national properties, invest svg, ulp and the like- when the same work can be accomplished through various ministries, can be closed to save the nation’s money. The moonlighting and daylighting and other corrupt practices must stop. Then and only then will there be monies available for the citizens’ good.

Thank you for posting my two previous posts Kenton. I really love making comments on SVG Macroeconomics. If you wish to post this as an opinion piece, please do so:

The world is still in the middle of this crisis regardless of what China claims. China has “jumped the gun” on the Global Economic race to “recovery prosperity” after the pandemic crisis. What can we really expect to see when and if quarantines are lifted in most of the world? Those governments that recognize how thier respective countries can get back onto the road to prosperity will obviously be the winners. If we in SVG realize that in the short term there will be a great need for food in many places we can gain tremendously. Saboto Caesar sees this but can we coordinate to exploit this opportunity? The Prime Minister has lowered or suspended some of the taxes on utilities realizing it will help the working poor for the immediate future. What about the sustainable long term economy? Traditionally the SVG Government has always done the wrong thing. After the 2008 crisis the government cut concessions and raised taxes, exacerbating the problem. Because it was a global crisis investors sought to find a place where they would not lose thier wealth and possibly gain more. “MONEY GOES WHERE MONEY IS TREATED WELL”. When we cut concessions and raised taxes investment stopped or emigrated out of SVG. I know many constrution workers that went to other Caribbean nations where investors still had advantages. “PEOPLE MOVE TO OPPORTUNITY, NOT TO A LACK THEREOF”.
The Prime Minister has mentioned that he wants people to not be afraid to voice constructive criticism in order to give him indications what we may want to see improve.
A few of the things that I suggest we do, even right now, is what Singapore did and does in such times of crisis: We have to create an environment where investors want to come. We have to do our best to provide an environment that:

MAKES PROSPERITY INEVITABLE AND POVERTY IMPOSSIBLE!

Do investors want to invest of come to a place that has some of the highest Customs Duties on earth, in a country where virtually everything has to be imported?

We used to have a Corporate Income Tax slightly below (1/2%) the USA. Now we are much higher. The UK drastically lowered thier Corporate tax and so did Cuba and most countries. We went down 2% Wow! It is still higher than most nations. Does anyone think that lowering it 2% is going to gain any immediate attention? It should be below 21%. Puerto Rico went all-out and reduced that tax to 4%. Sure, many rich and prominent people and corporations moved ther because of that but corruption and the hurricane damage as well as the US Federal Government’s NO SUPPORT attitude has slowed things down not to metion that 4% is way too low. IT LEAVES NO ROOM TO MANEUVER!

I hope the government realizes that it should stop the “government first” attitude and start thinking “people” or “Jobs” first. in that way they will find that revenue and development will be more assured than “borrow, spend, DEBT and tax to the max”. The concessionary system is TERRIBLE!!! It creates too much bureaucracy, it invites the most corrupt entities, (that think they will prosper because they get an UNFAIR advantage over the others) it takes too much time, it allows for corruption, bias, political bias and much more! If government wants development so much why not do what most all other INTELLIGENT countries do: just have far lower duties on self-nation-building machines, supplies, equipment and such whereby no one has to submit any paperwork and or poor people do not have to pay HUNDREDS TO CUSTOMS BROKERS JUST TO APPLY for a start-up!!! They may want to ask themselves: HOW DID SINGAPORE TRANSFORM?, A POOR COUNTRY WITH VIRTUALLY NO NATURAL RESOURCES BECOME THE PER CAPITA WEALTHIEST NATION ON EARTH?

I grew up in a jurisdiction that spawned such entities as Starbucks, Microsoft, Amazon, Costco, and much more… Many of them in my neighborhood. I saw how that happened and it did not happen as we do things in SVG! We need to WAKE UP!

They will say: “We are not Singapore” No, Singapore was an island nation amongst other island nations, formerly under British Rule. Doesn’t that sound familiar? SINGAPORE HAD IT MUCH ROUGHER THAN WE DO!
Yes, there are rough waters ahead but what are we going to do about it? Are we going to make it even rougher for even longer? Ralph Gonsalves is an intelligent man but is he going to keep doing the same macro economics that have never worked and only continue to make things worse?

A few months ago, one of my brothers asked:How does SVG earn money? He left St. Vincent when the country had an economy based on banana, copra, arrowroot, ground provisions, fruits, fish (black fish, jack fish, grouper, old wife, etc), and remittances from abroad. At that time, virtually every family had a small plot of bananas, breadfruit trees, nutmegs and cocoa,and some animals (pigs, cattle, donkey, goats, sheep, etc.). Today, banana is dead and gone, the breadfruit trees have mostly been blown down or cut down, the coconut estates that previously produced and traded copra are no more, farmers are reluctant to plant their fields of ground provisions because of fear of theft, meat and milk animals are routinely stolen, my auntie cut down our mango tree because the lazy vagrants routinely steal the fruits, most of the nutmeg trees have been abandoned, and on and on.

So I answered my brother: We earn money from Vincy abroad contributions to their relatives at home, government taxes on exports and imports, taxes on hotels and affiliated tourism businesses, consumption and production taxes (VAT,etc), government borrowings, government begging, and marijuana production/marketing. Are there any other significant avenues of government revenues. If yes, what?

The other side of the equation is: ” How does the government spent its revenues?

Now, a few months ago I saw an article stating that SVG had an egg surplus. I was glad. Bravo I said. Then I read that the government was sending the surplus eggs to Trinidad. My heart sank. Why must we in 2019 continue to export our primary goods? Haven’t we learned how to use primary products to manufacture value-added goods? Couldn’t we use those surplus eggs to manufacture cakes, breads, ice cream, egg nogs, etc that would help to increase the local economy?

Next, I saw the Minister of Agriculture at the wharf boasting about how SVG is “Food Secure” because we are shipping bags of primary farm goods (dasheen, tanias, plantains, etc) to Trinidad during the Covid-19 pandemic. How does that crazy gesture constitute food security? The money gained will be used to buy imported food stuffs and other consumer goods. Meanwhile, many Vincentians cannot afford to purchase the goods produced at home and the lazy people refuse to work the lands.

So how do we describe Vincentian economy? And how can we speak of the U.S economy in comparison to the Vincentian economy–the economy of lilliput?

If SVG survives the corona Virus, please beg the Comrade to gather a team of real economists (not those who have read undergraduate economics and have never worked as professional economists) to develop an action plan for private industry business creation, agricultural leadership–including the introduction and exploitation of crops (not banana and marijuana) capable of supporting profitable niche markets-not anything exotic. I purchase regular supplies of sorrel, ginger and careilla as daily health supplements. Ten ounces of dried sorrel from Nigeria or Thailand sell for about $6.00USprogress?

How can we escape from a “Dark Ages Mindset” to work in the interest of our national progress? Today we worry about Covid-19. Tomorrow it will be “Rising Seas”. Soon it might e about rising temperatures that dries up our rivers. Do we have the leadership to plan for the future?

By the way, what happened to the money we received from the EU to help us recover from the banana shock? Last thing I heard was that the PM had employed a Dominican expert to lead us to the promised recovery. Then nothing ….